The use of payment cards is steadily increasing in Europe. The Nordic countries constitute one of the most card-intensive regions in the world, which becomes clear when regarding statistics on the use of cards in the Nordics and the European Union (EU), as shown in Figure 1 below.
Figure 1: Number of Card Transactions per Inhabitant is Selected EU Countries versus the Nordics, 2010
Source: European Central Bank (ECB), Norges Bank.
According to figures from the European Central Bank (ECB) and the Norwegian central bank, Norges Bank, during 2010 the average number of card transactions per inhabitant was over 190 in the Nordic countries. This figure compares against 142 in the UK and only 33 in Germany.
The trend in the Nordic countries is that card payments continue to overwhelmingly dominate as a means of payment, shadowing the use of cash. The Swedish commerce organisation Svensk Handel has reported that card payments constitute over 70% of all payments at shops in Sweden and the situation is similar in the other Nordic countries.
Acceptance of card payments is a crucial factor in enabling companies to serve their customers and successfully compete and grow in the Nordic market.
Advantages of Card Acceptance
Enabling existing and potential customers to use their payment cards at the point of sale (PoS) offers companies a number of advantages, which include:
- Rapid payment.
- Guaranteed payment.
- Improved cash flow.
- Reduced costs for handling cash.
- Elimination or reduction of invoices.
- Ability to utilise appropriate cash management tools, such as cash pool solutions or reporting tools, to gain better control and reconciliation of payments.
Does Card Acceptance Work?
In order to accept card payments, the merchant must have an agreement with an acquirer – a bank or other financial or payment institution – which regulates the terms and conditions for card acceptance.
The merchant must also have a technical solution for card payments. Normally, this includes a cash register system for inventory control/book-keeping along with payment terminals where the customer inserts the card and enters his or her PIN code. In the Nordic countries, payment terminals are sold or leased by independent terminal providers and are often integrated with cash register systems.
The merchant’s technical solution will be connected to the acquirer’s processing system. For efficient payments at the PoS, it is important that the acquirer can offer a stable and reliable processing system.
After the card payment has been completed at the PoS, the transaction is submitted to the acquirer for payment to the merchant’s bank account. Payment to the merchant is guaranteed, meaning that there is no credit risk.
When card payments are accepted for electronic commerce (e-commerce), the merchant’s technical solution will normally be provided by a payment service provider (PSP) specialised in online card payments. Payment may also be guaranteed, depending on the level of security applied when the transaction is made.
There is considerable variation between acquirers as to how quickly payment is made after the card transactions are submitted. In addition, payment may be made on a gross or net basis with regard to acquiring fees. Many acquirers deduct their fees from the payment amount, making it difficult for the merchant to reconcile the bank account. However, some acquirers offer gross payment, where the total amount of the card transactions is deposited to the merchant’s account, with fees charged separately at a later date – for example at month-end.
Likewise, there is much variation concerning reporting, reconciliation, and cash management tools that enable companies to manage their card payments. Some, but not all, acquirers offer electronic reporting and uniform solutions for all countries.
Advantages of Uniform Handling of Card Transactions
There is a significant trend today whereby companies strive to streamline their payment processes by handling card payments in the same manner, regardless of which country the transactions take place in. This applies to technical aspects, such as using the same cash register system and payment terminals at all sales outlets, as well as signing a single agreement with one acquirer for card acceptance in all countries. The trend may well be further supported by the adoption of the single euro payments area (SEPA) across the European continent as standards converge and harmonization increases.
There are several reasons for the uniform handling development, with cost savings as the main driver. Minimising the number of suppliers leads to fewer agreements, more uniform technical implementation and a reduction in administrative procedures. This means a need for fewer internal resources and lower costs.
Working with only one acquirer, with uniform payment procedures, reporting and statistics can also give the company increased control and improved management of payment processes.
Technical Solutions for Card Payments
Uniform technical solutions are currently available, whereby the same cash register system and payment terminals may be used to process payment cards in all Nordic countries.
Merchants need to ensure that the technical solution can process all types of cards that may be presented at a PoS. In the Nordic countries, this means:
- General acceptance brands, such as Visa, Visa Electron, V Pay, MasterCard and Maestro.
- Domestic brands, such as BankAxept in Norway and Dankort in Denmark.
The merchant may also determine that processing of additional brands, such as American Express (Amex), Diners Club, or proprietary cards belonging to the merchant or affiliated organisation, may be a requirement.
For e-commerce, the acceptance brands may be more limited. For example, in Norway the BankAxept brand is not used for online card payments.
The Acquiring Agreement: Evaluation Criteria
When selecting an acquirer, it is important to make certain that the acquirer can fulfill the following requirements:
- Card acquiring in all Nordic countries.
- Processing of all required card types, as mentioned above.
- Rapid payment.
- Gross payment with fees charged separately in arrears.
- Uniform reporting, reconciliation and cash management tools.
- A stable, reliable processing system.
For companies conducting retail business in the Nordic region, card payments are an essential means of payment. There is every reason for to strive for uniform card payment solutions in all countries. Such solutions are available and offer considerable cost advantages from a technical, administrative and cash management perspective.
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